Selling Crypto Call Option (Sell Call)

Introduction

What does selling a Call option do?

You are selling the buyer the right to buy the underlying asset at your Strike Price on your Settlement Date

Why would I sell a Call option?

You believe the price of the underlying asset (Settlement Price) on the Settlement Date will not be greater than your Breakeven Price

How do I calculate my Breakeven Price?

Breakeven Price [Call option] = [Strike Price] + [Premium Receivable]

E.g. Selling a Call option with Strike Price = $10,000 will entitle you to a Premium Receivable of $500 ( In BTC equivalent = $500/$10,000 = 0.05 BTC), obligating you to sell 1 BTC for $10,000 at settlement. Your Breakeven Price would be $10,500

How do I calculate my profit?

Profit = Premium Receivable

Loss = [Breakeven Price] — [Settlement Price]

Scenario 1: P&L if Settlement Price (BTC settles at $5,000) ≤ Strike Price

Profit = Premium Receivable

= 0.05 BTC

Scenario 2: P&L if Settlement Price (BTC settles at $12,000) > Strike Price

Loss = [Breakeven Price = Strike Price + Premium Receivable] — Settlement Price

= [($10,000/$12,000) + 0.05 BTC] — ($12,000 / $12,000)

= -0.36 BTC

What is my maximum profit?

Your profit is limited to the Premium Receivable for selling the Call option

What is my maximum loss?

Your loss is theoretically unlimited to the downside. However, Sparrow Options are 100% collateralised with the amount of underlying asset, so your losses are pretty much capped with the amount of underlying assets collateralised

Selling a Call option on Sparrow

  1. Go to Options > Simplified
  2. Click/Tap TradeBOOST Sell [it will turn Green if correctly activated]
  3. In the Customization Panel on the right
  4. Enter a Strike Price that is greater than the Current Price to set a Call option
  5. Enter the Settlement Date and Amount Monetized
  6. The Premium Receivable will be displayed at the bottom
  7. Click/Tap Confirm to place the order
Example
  • You are bearish or neutral and expect BTC to trade below $11,000 on 27 March 2020
  • You decide to sell a Call for 1 BTC with Strike Price at $11,000, Settlement Date on 27 March 2020
  • Premium Receivable is 440.46 SP$
How do I profit?
  • As long as $11,000 (Strike Price) and above is not hit, you will get to profit fully from the Premium Receivable. Your profit will be capped by the Premium Receivable
  • However, if the market trades against the topside and your Strike Price is hit, your maximum loss will be capped to the pledged collateral, 1 BTC

 

 

 

 

 

 

 

 

FAQ

Why are Sparrow options fully covered?

Sparrow options are fully covered as the seller of the option has to pledge 100% of the underlying asset upon trade initiation. Likewise, the buyer of the option will be required to pay a non-refundable premium to compensate the seller’s risk of pledging the underlying asset. This negates counterparty risks.

Why are selling Calls pledged in the underlying assets?

Sparrow has specially designed this pledging system to account for extreme market situations such as when the price rallies too much. This will help to protect both buyer and seller by preventing counterparty risk, where there is a possibility that either the buyer or seller might default on his or her contractual obligation.

Example: If you make a BTC/USD sell Call option trade and the price of BTC rallies — With BTC as the pledged collateral instead of SP$, counterparty risk will be negated as the BTC previously pledged by the seller will be sufficient to settle with the buyer at the agreed upon rate of equivalence.

 

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DISCLAIMER

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